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A mid-term report card on EMV

It’s been approximately one year since the EMV liability shift took effect and it’s time for a mid-term report card on EMV’s issuance, acceptance, speed, security and overall impact.

EMV Issuance

In terms of card issuance, I have to give the issuers a “B+” for the pure volume of credit and debit cards they’ve placed in the hands of millions of cardholders, starting even before the liability shift began. As of June 2016, Visa reported that 125 million credit cards were issued, representing 44% of all credit cards. Visa also reported that 126 million debit cards issued, representing 27% of all debit cards. They are forecasting 76% of credit cards and 56% debit cards will be issued by the end of the fourth quarter 2016. Relative to merchant locations, 20% of the total available locations support chip EMV out of 4.6 million merchants. Visa is forecasting 50% by the end of the fourth quarter of this year. Likewise MasterCard issuing banks reported nearly 60% of MasterCard cards are chip, 78% of all credit cards and 26% of all debit cards. MasterCard also reported that 26% of POS locations support EMV and that chip transactions made up 21% of volume at POS during June.

From the statistics we can tell that debit card issuance is lagging behind that of credit cards. This is due in part to the need to maintain Durbin compliance and the time it took for the regional debit networks to reach agreement with Visa and MasterCard on the EMV kernel.

EMV readiness for restaurants

Simplify an “F”. Many of the POS providers have “fallen on their swords” relative to their readiness to enable EMV for their restaurant customers, leaving those customers in the lurch for a solution to solve the volume of chargebacks that started on October 1st of last year. That being said, there are solution providers and enterprising acquirers coming to market with solutions that are filling the gap. However, readiness of EMV POS solutions is not all the POS providers doing or lack thereof. The EMV certification process is complex, it is costly, the simulators used for testing are ever changing, and there are modifications and enhancements made by the Card Brands (Visa, MasterCard, American Express and Discover), all of which have contributed to the lack of EMV acceptance for the restaurant industry.

EMV transaction speed

I am going to be generous and give EMV as implemented in the U.S. a “C-”. Why a C-? There is not a region or country that has rolled out EMV that has not seen a throughput impact at the checkout. Speaking with Canadians, who were one of one of the last countries to migrate to EMV, they were pretty much already using PIN (we’ll speak about security in a moment) when they rolled out EMV and their banks made the decision to issue cards with both EMV contact and contactless. Contactless has proven to be fast and secure for Canadian consumers. The U.S.? Our cards are predominately issued with only EMV contact and magstripe. U.S. issuers and the Card Brands are betting on you, the consumer, to use your mobile wallet to pay. As of today, the percentage of EMV contactless is only a fraction of the overall card volumes in the U.S. The Card Brands are also betting on Quick Chip and M/Chip Fast to streamline the EMV checkout process. In summary, Quick Chip and M/Chip Fast mimic the EMV contactless flow and shorten the time that an EMV card needs to be inserted and held in the EMV reader. Do Quick Chip and M/Chip Fast really reduce transaction times? It remains to be seen but perception is reality to many cardholders as well as restaurants and QSR that ae migrating to chip but looking to avoid queuing issues.

EMV Security

EMV’s primary objective is to stop counterfeiting. Since its inception in the early 90’s, EMV has done an exceptional job at eliminating counterfeiting so I am going to give it an “A”. However, we are missing one vital element in the U.S. – the ability to use the EMV card to validate the cardholder. While EMV cards are almost impossible to counterfeit, there is nothing stopping a person from using a lost or stolen EMV card to make a purchase as a result of the U.S. issuers not requiring prompting for PIN. MasterCard, Discover and Amex hold the merchant responsible if you do not have EMV implemented and cannot process a PIN. Major merchants such as Wal-Mart and Target are suing the Card Brands over the simple fact that we are not fully using this technology to protect the businesses that accept their branded cards. Yes, mandating PIN would it impact speed, but many businesses would make that trade-off to ensure the customer at the counter is in fact the cardholder of record. Let’s say it another way. The U.S. is the only developed country in the world to have rolled out EMV without the majority of cards issued requiring PIN. Those countries went to the “Nth degree” to ensure that both counterfeiting and illegal use of lost and stolen cards would be eliminated.

The Cardholder User Experience

A “C” at best and yes I am being generous again. Here’s why. There will always be a transition period when all EMV cards have not been issued and all merchant locations are not rolled out. Worldwide, not one region has 100% of its merchant locations rolled out for EMV acceptance and magnetic cards eliminated. However, we in the U.S. have not made the cardholder experience at the checkout easier. Some issuers’ card support PINs and some support only signature or no CVM. Cardholders often have both these cards in their wallets, depending on the logo on the front of the card. Merchants and restaurants mark their payment acceptance devices with a sign such as “chip doesn’t work” so cardholders go to the checkout not knowing if they swipe, insert, enter a PIN or don’t enter a PIN. As I say earlier, contactless solves many of these issues.

In summary

The U.S. is clearly moving to complete its rollout of EMV cards and payment devices. Expectations of smooth sailing were not met but there is a tremendous amount of work being done to streamline acceptance and complete integration with the POS systems restaurants use. Hopefully by the time the “semester” is finished we’ll be able to bring up our grades.